In an attempt to limit the exportation of coal under the circumstance of soaring exports and to put aside more reserves for future coal-fuelled power plants, the Ministry of Finance has recently decided to raise the import tariff on coal from 0 per cent to 10 per cent.
Why limit coal exports?According to statistics released by the General Statistics Office (GSO), Vietnam exported 26.66 million tonnes of coal valued at US$833 million in the first 11 months of this year ending in November, representing up 67.9 per cent on year in terms of volume and 39.9 per cent on year in value. Vietnam is estimated to earn US$910 million from coal export, seeing an on-year increase of 35.9 per cent and exceeding this year’s target by 74.6 per cent. This raises the question for concerned people that why the volume of exported coal soared in recent years and whether the export output continues rising in the future.
The answer is the coal price on the global market is increasing and the coal industry needs to speed up the export of the fossil fuel to offset investment sums before the limit on coal export to take effect. Right in the middle of 2006, the Ministry of Natural Resources and Environment proposed measures to soon limit the export of coal to set aside reserves for the development of national economy as the demand for fuels is getting higher but the supply source is becoming limited. Coal is a non-renewable source of fuel and the exploitation of this fuel is getting more difficult. Many coal exporting countries have also put a cap on coal export, making coal more expensive on the global market. On the other hand, the limited coal exploitation is pro-environmental, a step to boost up the tourism development and to protect world natural heritages like Ha Long Bay near Quang Ninh coalmining hub.
Before 1998, the import tax on coal was 2 per cent when the value-added tax hadn’t taken effect. However, to help the coal industry maintain its stable development, the Government decided to scrap the export tax on coal from then on. This favourable tax rate enables the stable development of coal industry, especially since 2003 when the world coal price is getting increased.
At present, after the tax has been raised to 10 per cent, another issue aroused. Many are wondering whether the coal for national consumption is sold at which prices and whether products using coal [possibly at subsidised price] as a heating source will be exported. This is the key issue in the WTO regulations.
WTO principles.
“The WTO principles are fair treatment. The imposition of the export tax on natural resources is in line with the WTO regulations as they relate to environmental issues and the sustainable development of each nation; thus, the State can intervene. However, the interventions must be in agreement with international commitments and WTO principles,” said Dr. Vo Tri Thanh, Chief of the Integration Committee under Central Institute of Economic Management (CIEM) of the Ministry of Planning and Investment.
Regarding this issue, Dr Cu Huy Loi, Deputy Director of Vietnam Institute of Economics, said: The WTO allows the imposition of the export tariff on natural resources because they relate to environmental issues. However, the tax rate should be carefully calculated to match international commitments. If the purpose of raising the export tax on coal is to limit export and use the coal to fuel power plants, it is contradictory to the WTO principles. The WTO principles strictly prohibit input protection for export-oriented production and the electricity is an energy input for key export commodities like garments, textiles, leather footwear and woodwork.
Mr Bui Ngoc Hien, Deputy Director of Department of Industrial Economics, said all countries levy export tax on natural resources. The domestic price of coal also needs amending as, according to the WTO admission commitments, coal, as well as other natural resources, cannot be sold at the price lower than production cost.
Increasing domestic coal price
As seen, the key issue is the domestic coal price has so far to date not regulated in accordance with the market trends and rules. Thanh said, “The current management method has not suited the market-oriented economy if the centrally set price mechanism is still in existence.”
Under the current rule, the price of coal is set by the Government, aiming to stabilise the market. If other production industries like electricity, cement and sugar all asked not to change the coal price, it is impossible to increase the coal price as the Market Regulating Team cannot propose the Ministry of Finance to make a price rise. Therefore, for many years, the coal price on the world market has increased sharply while the domestic one has only seen a small change. Currently, the price of coal is still lower than its production cost and the Government is still subsidizing it. The subsidy is collected from coal export earnings.
“On joining the WTO, the management mechanism must match market principles. In other words, the domestic price must go in line with the world price movements,” Thanh explained. Sharing Thanh’s viewpoints, Mr Loi said: The price control is a method of input protection and this needs eliminating after the WTO entry. Under the current circumstance, when Vietnam becomes a member of the WTO, the rise in the price of domestically sold coal is unavoidable although there are objections from other industries. The electricity is an example. From January 1, 2007, the electricity price will grow 7.6 per cent above the current rate.
Under the export plan for the 2006-2010 period recently approved by the Prime Minister, the export of fuel, including crude oil and coal, will be gradually diminished. Concretely, the coal export volume will stay within 11 million tonnes a year in 2006 - 2007, 10 million tonnes in 2008, nine million tonnes in 2009 and eight million tonnes in 2010.
Minh Anh
Vietnamese
